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 Mon Jun 29, 2020
Tracker: Spec Value Rating for Eskay Mining Corp
    Publisher: Kaiser Research Online
    Author: Copyright 2020 John A. Kaiser

Eskay Mining Corp (ESK-V: $0.215)

Tracker - June 29, 2020: Spec Value Rating for Eskay Mining Corp

Eskay Mining Corp is set to launch an entire rethink of its SIB-Corey land package in the Golden Triangle of British Columbia. The perennially terrible balance sheet has been cleaned up with a $362,122 debt settlement at $0.17 and a $2,440,000 private placement unit financing done at $0.17 and $0.255 for hard and flow-thru dollars. I adopted Eskay Mining as a bottom-fish recommendation in 2017 after SSR Mining Inc optioned The SIB-Lulu portion that SSR optioned required it to spend $14.6 million over 3 years to earn 51%, which it could boost to 60% by spending another $10 million. The deal was driven by Carl Edmunds who had worked on the Eskay Creek property now owned by Skeena while he was with Homestake and he had a clear idea how to find the missing "iceberg" from which the Lulu "tip" found in 1991 had been detached. The Eskay Creek deposit is a VMS style system which formed in a marine setting and which underwent later mineralizing events that loaded the base metal deposit with an awful lot of gold and silver. The stratigraphy was initially flat but folding created an anticline whose axis was eroded away, leaving the western limb tilted on its side with a stratigraphic sequence of west to east younger to older units exposed in a north-south direction. Eskay Creek was at the northern end and the dream was that Eskay Creek 2 was hidden on Eskay Mining's southern extension of this geology. The high grade gold-silver Lulu zone was evidence that similar fluid flow took place at SIB, but the zone proved tiny and various exploration groups have struggled to understand where the rest of it was located. For SSR the key was the recognition of the Coulter Creek Thrust, which is a low angle fault that causes a raft of rock to detach from its root and slide away from it. The most famous example is Nevada's Roberts Mountain thrust which pushed siltstones over top of carbonates that created a future trap for rising fluids that created Carlin type gold deposits. In the case of Coulter Creek the thrusting would have happened long after Eskay Creek 2 formed, breaking the Lulu zone in the hanging wall from its root in the footwall and pushing the whole mess westwards. That was why the Lulu zone had no depth. SSR designed a drilling strategy which would spot holes in the younger Bowser Lake sediments to the west and drill shallow angle holes eastwards beneath the Coulter Creek thrust fault as a way of mapping the actual location of the Hazelton Group units that host Eskay Creek. This hypothesis intrigued me and I wrote it up on April 12, 2017. I also created an Outcome Visualization of what an exact clone of Eskay Creek would be worth today, which is about CAD $4 billion or $21 per share based on 152.2 million fully diluted and an 80% interest (under the SSR deal Eskay would have net 20% with a $5.25 target). But in late 2018 after spending $7.7 million and not really finding anything SSR dropped the option, plunging Eskay Mining Corp into a dumpster from which it did not start to emerge until late 2019 when Mac Balkam recruited Quinton Hennigh along with academics John DeDecker and Tom Monecke to undertake a deep dive into over $50 million worth of data generated since the nineties. And it turns out that the Coulter Creek thrust concept was completely wrong, which, ironically, came to light because SSR spotted holes in Bowser Lake sediments to the west.

The geology map above shows the approximate location of the Lulu Zone and the holes drilled by SSR, many of which were spotted in the Bowser Lake sediments to the west. The sectional view below looking north depicts the Coulter Creek Thrust concept with which SSR tackled the new strategy for finding the source of the Lulu zone. It posited that the Lulu Zone was in the hanging wall of the thrust plane which dipped to the east, and was thrust westwards so that the source was somewhere to the east in the footwall. SSR drilled enough holes both from the west and the east to conclude that there was neither room for an Eskay Creek nor the alteration geochemistry that would accompany the presence of a smaller version.

When John DeDecker took a close look at all the holes he arrived at two conclusions. One was that the SSR geologists did not have a deep understanding of the alteration geochemistry of volcanogenic massive sulphide systems, that in fact there was evidence of such alteration. The second conclusion helped explain why the alteration was too subtle for somebody not specialized in VMS systems to recognize. The Coulter Creek Thrust Fault did not exist as SSR envisioned it. The Hazelton Group rocks at surface were not a slice truncated from the source and slid upwards in a westerly direction, hiding Lulu's root with older rocks lower in the succession. They were generally intact in their original stratigraphic sequence except for small scale local faulting. But even worse, the contacts between the Bowser Lake unit and the Hazelton group units suggested that it was younger Bowser Lake rocks which were thrust upwards in an easterly direction over the Hazelton units.

The diagram above of the new Coulter Creek Thrust Fault is difficult to understand in relation to the old concept because it is a section looking south, whereas the diagram used by SSR was looking north. For non-geologists and those not overly adept at spatial rotation I have inverted that diagram so that it is looking north.

The blue circled area is what most of the historic drilling has tested. The black color is the John Peaks basalt and contact mudstone unit that hosts the Eskay Creek deposit, while the yellow is the Eskay Rhyolite that hosts the gold-silver mineralization beneath the 21B Zone which Barrick left behind (21C Zone) and for which Skeena is now completing a PFS. The Lulu Zone is most likely within one of the Lower Mudstone units beneath the rhyolite and not necessarily part of anything big. It is simply evidence that the stratigraphy at SIB was pumped by gold-silver enriched fluids. The 21B Zone is hosted in the Contact Mudstone and would have formed before the hanging wall basalts flooded the seabed.

The new hypothesis developed by DeDecker, Hennigh and Monecke is that the John Peaks basalt and the Contact Mudstone are farther to the west and obscured by the Bowser Lake rocks. Although SSR spotted its holes in the Bowser Lake rocks, they would have overshot the Contact Mudstone. Nobody ever dreamed of drilling vertical holes into the Bowser Lake rock or westward angled holes because it was assumed the Bower Lake rocks were vertically very deep, not a veneer thrust eastwards over the real target for an Eskay Creek 2 discovery at SIB. The new target areas for SIB are represented by the rectangles in the diagram below. The 2020 summer program will involve relogging all the core and resubmitting samples for geochemical analysis so that DeDecker's team can create a 3D alteration-geology model for the SIB area that will form the basis for drilling some holes into the SIB target areas to deliver proof of their hypothesis. They are convinced that a prize with size comparable to Eskay Creek 1 lurks just west of the edge of the Bowser Lake rocks.

Skeena reported some holes in late 2019 for the 21A Zone area at the southern end of the Eskay Creek property which suggests there is still room for higher grade mudstone hosted gold-silver mineralization as opposed to the rhyolite hosted stringer mineralization that is the focus of its current efforts. Skeena will earn 100% by paying Barrick $17.7 million, but because Skeena reached the milestone of a resource estimate for 1.5 million gold equivalent ounces, Barrick has 12 months from Skeena exercising the option to back in for 51% by reimbursing three times Skeena's cumulative expenditures, repaying the $10 million acquisition price, and putting up 51% of the $7.7 million reclamation bond. The timing of Skeena's exercise of the option appears to be at its discretion, so its current strategy is to spend as much money as possible on feasibility demonstration so that the total amount it receives from Barrick is maximized without creating any new discovery value such as finding something at the southern end which would encourage Barrick to back in for 51%. Skeena is in somewhat of a pickle because Hochschild has until September 2021 to elect to earn 60% of Snip, and once Skeena exercises to acquire Eskay Creek 100%, that project could be stalled for 12 months while Barrick thinks about backing in. Kirkland Lake Gold owns 20% of the SIB and North Mitchell blocks, but neither Kirkland Lake nor Eric Sprott have shown much interest in what Eskay Mining Corp is up to. Skeena is trending higher because it is tracking the price of gold as a gold optionality play, but the more expensive Skeena gets, the more interesting Eskay Mining Corp becomes as a target for Skeena, especially if it gives up trying to finesse Barrick out of exercising its back-in right.

During the summer of 2020 Eskay Mining will also relog core from the 100% owned Corey claims and conduct a property wide BLEG study ("bulk leach extractable gold" - a geochemical sampling method) targeting outcrop, along with a LIDAR survey to help correlate the two different coordinate systems underlying the project's datasets. Much of 2020 will be dedicated to creating a sophisticated geological context for the $50 million plus worth of accumulated data that never led to a discovery worthy of a resource estimate. However, Eskay Mining does plan to finish the season will some drilling, subject to additional financing. Some drilling will be done in the SIB target areas to confirm the new Coulter Creek Thrust concept. DeDecker would also like to drill one or two deep holes in the Jeff-TV area which falls within the 80% SIB property. The SIB property has undergone east-west strike-slip faulting, which has displaced the Jeff-TV rocks to the east. Data is weak in this area because it is heavily wooded. DeDecker's team thinks Jeff-TV is the eastwards displaced continuation of the Hazelton Group stratigraphy that hosts Eskay Creek. DeDecker would also like to drill a deep geological hole under the C10 target which is in the southern half of the 100% owned Corey property which is seen mainly as having porphyry potential. DeDecker will also attempt some mapping and sampling of the North Mitchell property which used to be covered by glaciers and may have potential similar to Pretium's Brucejack project to the south. While there is a risk that Eskay Mining Corp does not receive funding for a drill program in late summer, or a Covid-19 resurgence locks down exploration activity later this year, I also like the chances that in the current climate of surging market interest in discovery exploration Eskay will get another financing done this summer at a better price. Furthermore, this is the first time that a big picture ground up geochemical-geological approach is being taken at SIB-Corey, and if the new Coulter Creek Thrust hypothesis is correct, the potential for an Eskay Creek 2 worth CAD $4 billion is essentially untested in the SIB area. I also like it that Mac Balkam has finally cleaned up the balance sheet after keeping this junior with negative working capital alive through the ten year resource junior bear market that is finally turning into a bull market. And it is nice to see Eskay Mining operating for its 80%-100% benefit a properly funded exploration program. Eskay Mining Corp is already Bottom-Fish Spec Value rated and effective June 29, 2020 I am making Eskay Mining Corp a KRO 2020 Favorite.


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